In one of the first issues of the AAII Journal, AAII founder James Cloonan compared and contrasted individual investors with institutional investors (“The Position of The Individual Investor,” republished in January 2019). He described individual investors as having much more flexibility. Institutional investors, meanwhile, were described as having an information advantage. They could purchase more information and had greater resources to analyze and interpret the data.

On balance compared to institutional investors, Cloonan thought individual investors were at least as well off. “They can move more quickly, have a wider range of opportunities and can tailor their program more effectively.”

One of the biggest advantages Cloonan saw for individual investors was their ability to invest in smaller-sized companies. We individual investors can buy proportionately more meaningful positions in less frequently traded stocks than larger institutional investors can.

Another advantage I like to think individual investors have over institutional investors is never having to report performance. Most professional investment and fund managers are required to report their performance at least quarterly. They are also frequently hired and fired based on three-year returns.

We individual investors have a time horizon of a major life stage like retirement, a large purchase like a house or perhaps leaving an inheritance. This gives us set timelines to target as opposed to having to meet the performance of benchmarks based on artificial timelines. It gives us a huge opportunity to be different than our larger institutional counterparts. Simply put, we can play a different game than institutional investors are forced to play.

I’ve written about the concept of being different several times before. It’s not just an advantage that individual investors can use, but also one that has long been used by many of the world’s greatest investors. When you look at how the legendary investors invest, you realize that they use different approaches than what you commonly see featured in both traditional and social media.

Warren Buffett, for instance, has built a reputation for buying quality companies at prices he thinks are attractive. Sir John Templeton built his reputation on making contrarian bets. John Bogle was a big proponent of getting cost out of the way and simply tracking the market. Though commonly viewed as a passive strategy, indexing was a very radical idea at the time that Bogle launched Vanguard.

This idea of being different comes up in the interview I did with William Green. Green interviewed several of the world’s legendary investors. Some you have heard of, others not so much. In every case, there was something different about their approach relative to what you hear in the day-to-day soundbites.

Being different does not necessarily mean being active. You can be different by simply choosing to invest differently than the people you most frequently interact with or hear about. Behavioral finance scientist Meir Statman talked about distinguishing good herds from bad ones in “Managing the Mental Aspect of Investing,” in the May 2011 AAII Journal.

You can choose to simply invest in a broad-based index fund. This would make you different than those who feel the need to constantly focus on the headlines and the stocks that are being talked about now. You can also choose to join the many who are in the evidence-based approach camp. This camp includes AAII. The decision really comes down to your personal preferences and what you are and are not willing to do as an investor.

For many people, a target-date fund may be the best decision. Such would be the case if you do not have the time or willingness to adjust your allocation over time. It would also make sense for new investors who have yet to gain enough knowledge to make their own decisions regarding investments and allocation. I discuss how to analyze a target-date fund here.

For those of you who want to engage with other AAII members about their approaches to investing, we offer local chapters and online Facebook communities. I realize that online security is a concern for some. This is why I asked our financial writer Matthew Bajkowski to explain how to control your privacy on Facebook. I like to joke that my personal Facebook profile is locked down. Keeping the privacy settings tight allows me to maintain separation between my personal life and my professional life. If you’re on Facebook, you’ll find his article helpful. 

Wishing you prosperity and good health,

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